Getting Organized for Tax Preparation

The holiday season is behind us; our New Year’s resolutions are in place and now we must get ready to meet with our tax pro to file 2014 income tax returns. If you started a 2014 income tax file at the beginning of last year and have been filing away important tax documents throughout the year, you may find the task will not be too daunting. The backup data you require will be at your fingertips. If you kept your personal finances on an accounting program such as QuickBooks or Quicken, you will be able to generate reports that provide the data your tax professional requires to prepare your income tax return.

But if you must sit down instead and review your check registers and other receipts, the following tips should help you get organized quickly.

Start by labeling a file folder “2014 Income Taxes” to hold copies of cancelled checks, credit card statements and other back up data for the numbers you will be using on your tax return.

If your tax pro sent you an organizer, it is best to complete the appropriate fields within the organizer and return that along with your back-up documentation. But if you, like so many others, have your own system and do not use the organizer, then plow ahead compiling your data as you did in years past. Remember however, that your tax preparation fee is based on how organized you present your data as well as on the number of forms involved and the complexity of your tax situation. If you provide your tax pro with well-organized, complete, and totaled data, your fee may be lower. Discuss your presentation with your tax pro for organizational tips.

Most organizers have boxes to fill in with the information from your W2. Do not bother to fill in that data. Instead, simply staple your W2(s) to that page in the organizer. If a client presents me with a W2, I input the data directly from the W2. I never bother with what is listed on the organizer; there may have been transpositions or incomplete fields. The same principle applies to all other data requests that are backed up with 1099s or K-1s. Simply provide the document.

This will save a lot of time doing copy work.

In lieu of using the organizer you might prefer a spreadsheet program that can list all data and provide accurate totals. Refer to the organizer to make sure that you have not missed an important reportable item. The organizer normally contains columns with prior year data. This will jog your memory as to what deductions to look for as you review your financial data.

This year, because of Obamacare, there are two additional tax forms that may be required to file with your tax return. Your tax pro will likely provide an ACA questionnaire or worksheet for you to complete along with the organizer. If you did not have health insurance coverage for the entire year, you may be required to pay a penalty. Your tax professional will need dates of coverage and amounts paid listed by month in order to make the calculation or to determine if you are exempt from the penalty. Because tax pros have been put in a position to police the Affordable Care Act, your tax preparation fees will likely be slightly higher than last year. If you or your employer provided health care coverage for the entire year, you will not be required to break down the monthly costs.

As you organize your data think in terms of audit proofing your tax return. Make sure that you put receipts and cancelled checks in your tax file in the event of audit. Also be sure that all charitable contributions are backed up with an acknowledgement letter from the nonprofit. This is required and must be in place before filing the tax return. You cannot obtain the letter years later when you are audited. The IRS will disallow the deduction. If you have deductible automobile, travel and entertainment expenses – all red flags in the eyes of the IRS – be sure to have other documentation in your tax file to provide a bona fide tax deductible purpose for the expense. To substantiate automobile mileage you should have a mileage log, but absent that, you should have at least an appointment book or some other documentation showing dates, destinations, and number of miles traveled.

In this day and age, it’s rare to see an actual paper appointment book. Review your electronic calendar and on paper make a list of dates, destinations and miles driven to substantiate the expense. Keep this information in your tax file.

If you purchased or refinanced your home, second home, or a rental property during 2014, provide your tax pro with the settlement papers from escrow. There may be deductible items such as points or property taxes paid that provide a tax benefit.

Once you have compiled your data, review the organizer to ensure that you have completed all requirements for filing your return.

And start a tax file for 2015. If you take auto expense deduction, log in the beginning odometer reading from your vehicle. Then make a note in your calendar to log in the ending odometer reading on December 31. As the year progresses, file all documents, cancelled checks, and receipts in the tax file that are related to your 2015 income tax return. You’ll be pleased at how easy this will make tax preparation next year at this time!